The International Monetary Fund (IMF) once again lowered its economic growth forecast for the Middle East – North African region, with a warning of a recession of 5.7% this year, possibly even as high as 13% in certain countries experiencing conflict. This is double the 2.4% recession rate forecasted in April. This is the worst forecast in 50 years. Economies that rely heavily on energy revenue from the Gulf Cooperation Council (GCC) are forecast to see recession reductions of 7.1%, while the previous forecast was 4.4%. In oil importing countries, a deep budget deficit will cause public debt to soar to 95% of GDP by the end of this year. Oil importing countries also face a decline in foreign currency sent home by migrant workers, which is a significant source of revenue.
The consequences of the economic downturn are increased unemployment, poverty, budget deficit and public debt, and the risk of social outburst. In the context that about 25 million foreign workers living and working in GCC countries make up half of the population of these countries, the economic downturn is seriously affectingthese workers. It is forecast that the number of employees in the GCC will decrease by 13% this year, depriving about 1.7 million people in Saudi Arabia and 900,000 people in the UAE of work.
Iraq is facing a liquidity crisis after oil prices plummeted, forcing the country to drastically reduce social benefits that provide the backbone for millions of government employees and reduce the budget burden. Saudi Arabia has had to postpone large-scale projects. Additional cuts came after the country’s foreign exchange reserves were estimated to have a deficit of about US$500 billion. Kuwait’s foreign exchange reserves are also expected to decline, while Bahrain is expected to shoulder a debt of 105% of GDP in 2020 despite receiving a US$10 billion bailout package from neighbouring countries.
Countries in the Middle East have suffered heavy losses as most of their economic activities have been delayed. Oil prices fell by two-thirds, sometimes even resting at negative levels, causing oil exporters in the region to expect a loss of about US$270 billion in their “black gold” revenue. Meanwhile, GDP per capita in countries with instability is forecast to decrease from US$2,900 in 2018-2019 to US$2,000 this year. According to the IMF, this is a catastrophic decline, aggravating humanitarian and economic challenges and increasing poverty, leading to the risk of social unrest if governments do not effectively control the situation. Rising unemployment, poverty and injustice pose great challenges for governments in the region.
In addition to the economic stimulus packages that have been offered by most countries, easing restrictions on oil production is considered “key” to offseting the declining revenue in the oil powers, including many countries in the Middle East – North African region. However, according to analysts, the relaxation of oil production cuts still faces risks because the unpredictable developments of the pandemic could continue affecting global oil demand.
Countries in the region have taken many measures to overcome the crisis period, however, numerous challenges are still facing economies in the Middle East – North African region as there still remain many “hot spots” of conflict in the region.